Stock Market | Credit Default

Will your country default on debt?


A country's or company's Credit Default Swap (CDS) spread is the cost (per year) for protection against a default on debt by a particular company or sovereign entity.

With this application, using the proper discounting and some basic probability math, we get the Credit Default Probability for a given country's or company's based on the CDS spread.

But the application does more:

In theory CDS spread should be closely related to Bond Yields Spread. Then, using the Yield on an n-year par Bond Yield on an n-year par Bond issued by the entity being analyzed, and the Bond Yield on an n-year par risk-less Bond, is possible estimate the closely CDS Spread and the Credit Default Probability.

This application was developed by Octávio Viana to Portuguese Investors' Association, based on the followings papers:

Blanco, R., Brennan, S., & Marsh, I., 2003 "An Empirical Analysis of the Dynamic Relationship between Investment Grade Bonds and Credit Default Swaps", Working Paper, Bank of England, May.

Deutsche Bank Research, "Valuation of a CDS contract in the real world case"

Duffie, D., 1996 "Credit Swap Valuation", Working Paper, November 6

Hull, J. & White, 2000 "Credit Default Swaps I: No Counterparty Default Risk", Journal of Derivatives, 8,1, Fall, 29-40.

Hull, J., Predescu, M. & White, 2004 "The Relationship between Credit Default Swaps Spreads, Bond Yields, and Credit Rating announcements", Working Paper, 2004, January

Litterman & Ilben T., 1991, "Corporate Bond Valuation and the Term Strucutre of Credit Spreads", Journal of Portfolio Management, Spring, pp. 52-64

Longstaff, F. A., Mithal, S. & Neis E., 2003 "The Credit Default Swap Market: Is Credit Protection Priced Correctly", Working Paper, Anderson School, UCLA, August.

DISCLAIMER OF WARRANTIES: Neither ATM and Octávio Viana guarantee the accuracy, integrity, completeness, or timeliness of the application or any results generated by it. Likewise, ATM and Octávio Viana hereby disclaim all warranties or conditions, express or implied, related to the app or the results provided by it, including, but not limited, to absence of viruses and damaging, any warranties or representation that the application will be error-free or that access thereto will be uninterrupted, that any errors or defects will be correctable or corrected. The application maybe is not compatible with any particular device, be sure if feet in your device before buy it.

Limitations of Liability: Your use of this app is solely at your own risk. Neither ATM and Octávio Viana shall have any liability (whether direct, indirect, incidental, consequential, special, exemplary or the like, including, but not limited to, investment losses or lost profits) to You or any other party arising in any way from your use of, or inability to use, the application.

No Advisory Relationship: You understand and agree that the ATM or Octávo Viana, including, but not limited to, the results that may be provided by the application, does not constitute “investment advice” of any kind or establish any sort of advisory relationship between You and ATM or Octávio Viana. You further understand and agree that ATM or Octávio Viana does not endorse or recommend any financial products that may be used in conjunction with the application.

Governing Law: This Agreement shall be construed under the laws of Portugal. You agree to the exclusive jurisdictions of the state or federal courts located in Porto, Portugal, for any claims or action arising in any way with respect to the application or this Agreement.

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